tracker fund how does it work please

happyhero

Hi I have never bothered with tracker funds myself but my son has got one via the Child Trust Fund route, its the F&C FTSE All share tracker and seems to be doing really well. Each time they send me a statement it seems to be over 10% up, ie this time I received a statement showing it was £363.01 on 8/04/2013 and the increase is £42.64 at 31/12/13 making it £405.65, so I am pleased for my 8 year old at this progress but I don't really understand how the tracker will work in the long run.

I looked trackers up and it seems to imply it will go up with the FTSE in this case and down when the FTSE goes down so bearing in mind that the FTSE always seems to go up and down between about 7000 and 4000 ( I know my sons is the All Share but I am using the FTSE 100 for ease here) wont my sons investment just bounce between his high now and low as the FTSE drops again, i.e. what is the point of being in it several years if all it does is bounce between 2 figures, wouldn't you just get out the first time round.

I do realise it is a bit more involved than this but I don't understand how it grows over the years can someone explain to me how you can stay invested for several years and make money other than just coming out on the first high please?

lvader

The tracker will also be collecting dividends from most of the companies so even if the FTSE is going up and down the value from the dividends gets added.

Linton

happyhero wrote: »

Hi I have never bothered with tracker funds myself but my son has got one via the Child Trust Fund route, its the F&C FTSE All share tracker and seems to be doing really well. Each time they send me a statement it seems to be over 10% up, ie this time I received a statement showing it was £363.01 on 8/04/2013 and the increase is £42.64 at 31/12/13 making it £405.65, so I am pleased for my 8 year old at this progress but I don't really understand how the tracker will work in the long run.

I looked trackers up and it seems to imply it will go up with the FTSE in this case and down when the FTSE goes down so bearing in mind that the FTSE always seems to go up and down between about 7000 and 4000 ( I know my sons is the All Share but I am using the FTSE 100 for ease here) wont my sons investment just bounce between his high now and low as the FTSE drops again, i.e. what is the point of being in it several years if all it does is bounce between 2 figures, wouldn't you just get out the first time round.

I do realise it is a bit more involved than this but I don't understand how it grows over the years can someone explain to me how you can stay invested for several years and make money other than just coming out on the first high please?

The FTSE doesnt bounce between 7000 and 4000. 20 year ago it was at 3200, 25 years ago around 2000. The past 15 years have been somewhat unusual with one large bubble and two major crashes which have left it roughly where it started. But if you include 3% a year from dividends it doesnt look so bad.

Another factor to consider is that if you are drip feeding you gain disproportionately when prices are low - you get a lot more investment for your money. So a drip feeder would have done very much better than the simple index.

Finally the FTSE All Share has performed rather better than the FTSE100.